Examining Energy Transfer’s Recent Key Indicators

Top energy midstream stock Energy Transfer (ET) has gained in the last six consecutive trading sessions. It’s shown decent recovery since hitting multiyear lows last month. However, the stock has failed to impress investors this year. Weakness in oil and gas prices influenced midstream stocks, although these stocks had little direct exposure to energy commodities. Energy Transfer stock has fallen almost 5%, while the ALPS Alerian MLP ETF (AMLP) is up marginally so far this year.

Energy Transfer stock: Chart indicators

Energy Transfer stock is currently trading at $12.8, almost 5% above its 50-day simple moving average level. The stock broke below its 50-day level in August and has been trading weak since then. This level of close to $12.15 could act as a support for the stock in the short term. It’s still trading 8% below its 200-day moving average level. The stock’s large discount to this key level may be concerning for investors. This level of around $13.8 could act as a resistance for it in the short to medium term. The stock fell close to $11 levels early this month. However, ET stock has exhibited a notable recovery since then.

The recent strength has pushed ET stock into the overbought zone. Its RSI (relative strength index) was 77 on December 16. This RSI level indicates a probable reversal in the stock’s direction.

Energy Transfer has shown solid earnings growth for the last several quarters. For the nine months that ended on September 30, its EBITDA increased by an average of 35% compared to the same period in 2018. The company recently increased its EBITDA guidance range to $11.0 billion–$11.1 billion for 2019. For 2020, analysts expect its EBITDA to be near $11.3 billion. Energy Transfer expects its capex for next year to be $3.6 billion–$3.8 billion. In 2019, it expects to spend around $4 billion on capex. ET recently announced that it had completed a merger with Oklahoma-based oil and gas transport company SemGroup (SEMG).

ET and its peers: Valuation

Energy Transfer stock is currently trading a little over eight times its next year’s earnings, lower than its five-year average of close to 15x. Thus, the stock looks to be trading at a significant discount to its historical average. It also looks to be a discount to the industry average of around 12x.

Peer Williams Companies (WMB) is trading at 22x its 2020 earnings, while Enterprise Products Partners (EPD) is trading at 12x its forward earnings. WMB is up almost 10%, while EPD has soared more than 20% so far this year.

Read AMLP: What’s Next for Midstream MLPs after a Big Fall? to learn more.

Energy Transfer stock: Analysts’ views

Wall Street analysts have given Energy Transfer stock a mean target price of $20 against its current market price of $12.8. This estimate indicates a potential upside of more than 56% over the next 12 months.

Among the 20 analysts covering ET, nine recommend “strong buys,” another nine recommend “buys,” and two recommend “holds.” No analysts have given it “sells” as of December 17.

Enterprise Products Partners stock offers a potential upside of more than 25% for the next year. Analysts have given it a mean target price of $34.8 against its current market price of $27.7.

Williams Companies stock has a mean target price of $27.6, which suggests an estimated upside of 21%. It’s currently trading at $22.8. SunTrust Robinson Humphrey started covering WMB last week with a “buy” rating. It’s given the stock a target price of $27 for the next 12 months.

Read Energy Transfer Stock Offers a Solid Total Return Potential for more info.